Category CFA-Level-I

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To succeed in the CFA-Level-I exam, candidates must have a strong foundation in finance and investment management. Candidates should also have strong analytical and problem-solving skills to solve complex financial problems. In addition, candidates should be proficient in financial modeling and analysis, as well as proficient in using financial software tools. The CFA-Level-I exam is a challenging exam, but with the right preparation and dedication, candidates can successfully pass the exam and move on to the next level of the CFA program.

Achieving the CFA Level I certification is a significant accomplishment and can open doors to a wide range of career opportunities in the investment industry. It is a testament to the candidate’s dedication and commitment to their profession and demonstrates a high level of expertise in investment analysis and portfolio management.

NO.40 Details of changes in accounting principles for depreciation are found

 on the balance sheet.

 on the income statement.

 in the notes to the financial statements.

The balance sheet accounts are not affected by cumulative effects of accounting changes for depreciation. The balances in the asset and related accumulated depreciation accounts are not affected by the change. Only the amount of the cumulative effect (net of taxes) is found on the income statement. Details are found in the notes to the financial statements.

NO.41 Journalizing is performed by transferring information from the

 journal to the ledger.

 source documents to the ledger.

 source documents to the journal.

Posting is the process of transferring information from the journal to the ledger. Journalizing is the process of recording transactions in chronological order from source documents to the journal.

NO.42 For a bond to earn the yield to maturity, yield to first call, or yield to first par call the bond is assumed to be

 held to the next payment date

 held to the respective maturity dates

 held to the final maturity date

NO.43 BWT, Inc. shows the following data in its financial statements at the end of the year. Assume all securities were outstanding at the beginning of the year:
6.125% convertible bond, convertible into 33 shares of common stock. Issue price $1,000, 100
*
bonds outstanding.
6.25% convertible preferred stock, $100 par, 2,315 shares outstanding. Convertible into 3.3
*
shares of common stock, Issue price $100
8% convertible preferred stock, $100 par, 2,572 shares outstanding. Convertible into 5 common
*
shares, Issue price $80
9,986 warrants are outstanding with an exercise price of $38. Each warrant is convertible into 1
*
share of common.
Average market price of common is $52.00 per share. Common shares outstanding at the
*
beginning of the year were 40,045.
Net Income for the period was $200,000, while the tax rate was 40%.
*
How many new shares had to be issued to facilitate warrant conversion?

 2689

 7297

 9986

9986 x $38 = $379,468 $379,468/$52 = 7297 common shares 9986 – 7297 = 2689 new common shares

NO.44 Sampling error, which can be attributed to the fact that only a sample of values is observed, is

 the difference between a population value and an estimate of that value.

 the variance of a random sample.

 the standard error of the mean of random samples.

NO.45 Suppose a portfolio manager purchases $2 million of par value of a Treasury inflation protection security. The real rate is 2.6%. Assume that at the end of the first six months the CPI-U is 3.2%. The inflation-adjusted principal at the end of the first six months is

 $2,052,000.

 $2,064,000.

 $2,032,000.

The inflation adjustment to principal is $2,000,000 x 0.016 = $32,000. The inflation-adjusted principal is $2,000,000 + the inflation adjustment to principal = 2,000,000 + 32,000 = $2,032,000.

NO.46 The major differences between a warrant and a call option are:
I). Warrants are contracts outside of the firm while options are within the firm
II). Warrants have long maturities while options are usually short maturities
III). Warrant exercise dilutes the value of equity while option exercise does not

 I and II.

 II and III.

 I and III.

NO.47 Under what conditions can a monopolist have potentially lower costs and possibly charge a lower price than would exist if the market were competitive?

 when substantial economies of scale are present

 when the monopolist is a profit maximizer rather than a revenue maximizer

 when the monopolist operates on the inelastic portion of the demand curve

When significant economies of scale are present (usually due to the presence of enormous fixed costs) it is more efficient for one firm to produce the entire industry’s output because it can do so at a lower average cost than many small rival firms.

NO.48 A company’s quick ratio:

 Can never be larger than its current ratio at the same date.

 Indicates the length of time the company takes to pay its short-term creditors.

 Indicates how quickly the company converts its current assets to cash.

NO.49 Regarding the disclosure requirements for PP&E, which piece of information is required by IFRS but not by U.S. GAAP?

 Depreciation method.

 Useful lives.

 Accumulated depreciation expense.

Gross amount and accumulated amount should be disclosed. However, the useful lives or equivalently the depreciation rate are not required by U.S. GAAP.

NO.50 Which technical indictor brings together momentum and trend?

 Relative strength index.

 Stochastic oscillator.

 MACD

By comparing EMAs of different periods, the MACD line illustrates changes in the trend of a security. Then by comparing that difference to an average, an analyst can chart subtle shifts in the stock’s trend. Therefore MACD brings together momentum and trend in one indicator.

NO.51 Which of the following correctly defines the operating cycle?
I). Cash conversion cycle – Accounts payable period.
II). Inventory period + Accounts receivable period.
III). Cash conversion cycle + Accounts payable period.
IV). Inventory period – Accounts receivable period – Accounts payable period.

 I and II.

 II and III.

 II, III, and IV.

cash conversion cycle = Accounts receivable period + Inventory period – Accounts payable period

NO.52 When using the liability method, income tax expense is calculated:

 by adding deferred tax asset to the income taxes payable

 by determining the amount required to “plug” the entry after the income taxes payable, deferred tax asset, and deferred tax liability have been calculated and put into the entry

 by applying the current year’s rate to pretax accounting income

Income tax expense is always the amount to make the entry balance, after the income taxes payable, deferred tax asset and deferred tax liability have been computed.

NO.53 Which of the following statements is not correct?

 The sum of the absolute frequency is the total number of observations.

 Frequency distributions do not work with ratio scales.

 Each observation is contained in one and only one category.

Frequency distributions are used to summarize rates of return. They do work with ratio scales. Frequency distributions can be used with any kind of measurement scale.

NO.54 The market portfolio M is:

 the optimal risk/return trade-off.

 the optimal risky portfolio.

 a lending or borrowing portfolio.

It is the optimal risky portfolio. It is the optimal risky investment decision, which is separate from the financing decision.

NO.55 All of the following are reported on the income statement net of taxes except
I). extraordinary items.
II). accounting changes.
III). operating income.

 I and II.

 III only.

 None of these.

Extraordinary items, as well as other nonoperating items, are reported on the income statement net of taxes. Operating income is not reported net of taxes, rather, it is reported as operating income before income taxes and the related income taxes expense is reported separately.

NO.56 Which of the following would be a circumstance that would lead to the impairment of a long-term asset?

 any change in the legal or business environment

 significant decreases in the market value of the asset

 current period operating or cash flows that are smaller than the previous periods

Significant decreases in the market value of the asset will lead to an impairment of that asset and must be written down.

NO.57 Which of the following will be true for a competitive firm in long-run equilibrium?
I). P = MC
II). ATC = MC
III). P = ATC

 I only.

 I and III.

 I, II and III.

Since the firm’s profit maximizing condition states that the firm operates where P = MC this implies several things: in order to earn zero profits, the firm’s ATC must equal price. Therefore, since P =
MC and P = ATC then by induction, MC = ATC

NO.58 Your supervisor has asked you to increase trading volume in all discretionary accounts because he wants to increase revenues for the firm. You believe that this would be inappropriate for most of your clients. You should

 resign your position immediately

 contact CFA Institute to report a violation

 discuss the situation with the firm’s legal counsel and try to disassociate yourself from the practice.

NO.59 When an uptrend reverses twice at roughly the same high price level, a ______ pattern is formed.

 double top.

 double bottom.

 top and bottom.

NO.60 Which of the following statements regarding individual and institutional investors is/are incorrect?
I). Individuals define risk as “losing money”, while institutions view risk as variance (or standard deviation) of returns.
II). Individuals are categorized according to their personalities and unique circumstances, whereas institutions are categorized by the investment characteristics of those that have a beneficial interest in the portfolios of pension funds, endowment funds, banks, insurance companies and mutual funds.
III). Individuals are defined financially by their assets and goals (particularly as they related to their life cycle), while institutions are typically concentrated within precise asset and liability parameters.
IV). Institutions have great flexibility in selecting their investments, whereas individuals are managed and regulated by ERISA (Employee Retirement Income Security Act) as well as other legal constraints.

 II and IV.

 I and III.

 IV only.

Individuals have great flexibility in selecting their investments, whereas institutions are managed and regulated by ERISA (Employee Retirement Income Security Act) as well as other legal constraints.

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CFA Level I exam, offered by the CFA Institute, is the first step in the prestigious Chartered Financial Analyst (CFA) program. CFA-Level-I exam is a comprehensive assessment of a candidate’s knowledge and understanding of investment tools, ethical and professional standards, and quantitative methods. Passing the CFA Level I exam is a significant accomplishment as it is widely recognized as one of the most difficult and rigorous financial exams in the world.

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Topics of CFA CFA-Level-I: CFA Institute CFA Level I Chartered Financial Analyst Exam

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• Quantitative Methods
  In this section, we explore quantitative concepts and techniques used in financial analysis and investment decision making. We present descriptive statistics for conveying important data attributes, such as central tendency, location, and dispersion, and introduce characteristics of return distributions. The section also considers probability theory and its application in quantifying risk for investment decision making.
• Economics
• Ethical and Professional Standards
  The focus of this topic is ethics, related challenges to ethical behavior, and the role ethics and professionalism play in the investment industry. We provide a framework to support ethical decision making and examine the CFA Institute Code of Ethics and Standards of Professional Conduct and Global Investment Performance Standards (GIPS).

In this section, we introduce analysis of fundamental concepts of supply and demand for individual consumers and firms. We also cover the various market structures that firms operate in as well as macroeconomic concepts and principles, including aggregate output and income measurement, aggregate demand and supply analysis, and analysis of economic growth factors. The section concludes with coverage of the business cycle and its effect on economic activity.

• Alternative Investments
  This topic explores alternative investments, including hedge funds, private equity, real estate, commodities, and infrastructure. We cover the use of alternative investments for diversification and higher returns. In this curriculum, we define alternative investments and the characteristics they have in common.

• Portfolio Management
  In this topic, we explain the fundamentals of portfolio and risk management, including return and risk measurement and portfolio planning and construction. We examine the needs of individual and institutional investors along with the range of available investment solutions. The capital asset pricing model is used to identify optimal risk in portfolios.

• Equity Investments
  Here we explore the characteristics of equity investments, security markets, and indexes and explain how to analyze industries, companies, and equity securities as well as the use of basic equity valuation models. Global equities are important for meeting longer-term growth and diversification objectives.

• Financial Reporting and Analysis
  Here we provide a thorough explanation of financial reporting procedures and the standards that govern financial reporting disclosures, with an emphasis on basic financial statements and how alternative accounting methods affect those statements and the analysis of them. We examine primary financial statements and provide a general framework for conducting financial statement analysis.

• Fixed Income
  In this topic, we explain how to describe fixed income securities and their markets, yield measures, risk factors, and valuation measurements and drivers. We also cover calculating yields, values of fixed income securities, the securitization of assets, the fundamentals of bond returns and risks, and basic principles of credit analysis.

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